Reconstitution of Partnership: Admission of a Partner, ISC Class 12 Accounts

What Reconstitution of Partnership: Admission is about

Weightage: Reconstitution of Partnership: Admission is part of the unit Goodwill; Reconstitution of Partnership: Admission, Retirement and Death of a Partner, which carries 15 of the 80 theory marks, shared with 2 other chapters. It is in the compulsory Section A (60 marks).Source: CISCE ISC Accountancy (Accounts) syllabus, examination year 2027, distribution of marks

Key concepts

New, sacrificing and gaining ratios

Sacrificing ratio = old share − new share, for each old partner. It decides who receives the new partner's premium for goodwill.

Three common cases:

• Nothing said about the sacrifice: the old partners sacrifice in their old ratio; their new shares = old share × (1 − new partner's share).
• Sacrifice specified: subtract what each gives from his old share.
• New ratio given: compute old − new for each. An old partner whose new share is higher than his old share has gained; he must compensate the sacrificing partner(s) for his gain, just as the new partner does.

The gaining ratio (new − old) is mostly used on retirement, but on admission it appears when an old partner gains.

Worked example

Suppose Anil and Bela share profits 3 : 2. They admit Charu for 1/4 share, which she acquires 1/6 from Anil and 1/12 from Bela. Calculate the new ratio and the sacrificing ratio. [2 marks]

Try it first, then show the solutionSolution

1. Anil: 3/5 − 1/6 = 18/30 − 5/30 = 13/30 = 26/60. Bela: 2/5 − 1/12 = 24/60 − 5/60 = 19/60. Charu: 1/4 = 15/60.
2. Sacrificing ratio = 1/6 : 1/12 = 2 : 1.

Answer: New ratio 26 : 19 : 15; sacrificing ratio 2 : 1.

Premium for goodwill under AS-26: cash, kind, withdrawn, privately

AS-26 does not allow self-generated goodwill to be recorded, so the new partner's share of goodwill is given directly to the sacrificing partners in the sacrificing ratio.

• Brought in cash and retained: Bank A/c Dr To Premium for Goodwill A/c; then Premium for Goodwill A/c Dr To Sacrificing Partners' Capital A/cs.
• Brought in kind (an asset such as stock or a machine): Asset A/c Dr To Premium for Goodwill A/c; then distribute as above.
• Withdrawn by the old partners (fully or partly): after crediting it, Sacrificing Partners' Capital A/cs Dr To Bank A/c.
• Paid privately to the old partners outside the business: no entry in the firm's books.

Always write "Premium for Goodwill A/c" in full; the CISCE answer key says short forms such as PFG are not to be used.

Worked example

Suppose Dev and Ela share profits 3 : 1 and admit Farhan for 1/5 share. Farhan brings ₹2,00,000 as capital and, as his share of goodwill, stock worth ₹40,000. Pass the journal entries. [3 marks]

Try it first, then show the solutionSolution

1. Particulars	Dr (₹)	Cr (₹)
   Bank A/c ... Dr	2,00,000
   Stock A/c ... Dr	40,000
   To Farhan's Capital A/c		2,00,000
   To Premium for Goodwill A/c		40,000
   (Being capital and premium for goodwill (in stock) brought in by Farhan)
   Premium for Goodwill A/c ... Dr	40,000
   To Dev's Capital A/c		30,000
   To Ela's Capital A/c		10,000
   (Being premium for goodwill credited to sacrificing partners in 3 : 1)

2. Nothing is said about the sacrifice, so the sacrificing ratio is the old ratio 3 : 1.

Answer: Premium of ₹40,000 (in stock) is shared ₹30,000 to Dev and ₹10,000 to Ela.

Premium not brought in cash; hidden goodwill; goodwill in the old Balance Sheet

Premium not brought in cash (fully or partly): the syllabus requires the adjustment through the new partner's Current A/c: New Partner's Current A/c Dr To Sacrificing Partners' Capital A/cs (in sacrificing ratio). His Current A/c then shows a debit balance on the assets side of the new Balance Sheet.

Hidden (inferred) goodwill: when goodwill is not given but the new partner's capital and share are:

• Total capital implied = New partner's capital × reciprocal of his share.
• Hidden goodwill = Implied total capital − (old partners' capitals after all adjustments + new partner's capital).
• His share of it is treated like premium not brought in (through his Current A/c) unless the question says he brings it.

Goodwill already in the books: write it off among the old partners in the old ratio (Old Partners' Capital A/cs Dr To Goodwill A/c) before the new partner's premium is recorded.

An old partner who gains must compensate the sacrificing partner: Gaining Partner's Capital A/c Dr To Sacrificing Partner's Capital A/c.

Worked example

Suppose Pari and Qadir share profits 3 : 2. After revaluation and reserves their capitals are ₹2,40,000 and ₹1,60,000. Rohan is admitted for 1/5 share and brings ₹1,20,000 capital but no premium. Calculate hidden goodwill and pass the entry for Rohan's share. [3 marks]

Try it first, then show the solutionSolution

1. Implied total capital = 1,20,000 × 5 = ₹6,00,000. Actual total = 2,40,000 + 1,60,000 + 1,20,000 = ₹5,20,000.
2. Hidden goodwill = 6,00,000 − 5,20,000 = ₹80,000; Rohan's share = 1/5 = ₹16,000, sacrificed by Pari and Qadir in 3 : 2.

3. Particulars	Dr (₹)	Cr (₹)
   Rohan's Current A/c ... Dr	16,000
   To Pari's Capital A/c		9,600
   To Qadir's Capital A/c		6,400
   (Being Rohan's share of hidden goodwill adjusted through his current account)

Answer: Hidden goodwill ₹80,000; Rohan's share ₹16,000 credited ₹9,600 to Pari and ₹6,400 to Qadir.

Revaluation Account

Assets and liabilities are revalued so that the old partners alone bear gains and losses that arose before the admission. The Revaluation Account is debited with decreases in assets, increases in liabilities and new (unrecorded) liabilities, and credited with increases in assets, decreases in liabilities and unrecorded assets. The balance (profit or loss) goes to the old partners in the old ratio.

Typical items: depreciation or appreciation of fixed assets; change in provision for doubtful debts; stock written down; prepaid expenses not recorded (gain); outstanding expenses not recorded (loss); a claim for damages accepted (loss); creditors not payable (gain).

The syllabus asks only for the Revaluation Account where the new values are shown in the new Balance Sheet (memorandum revaluation is excluded).

Worked example

Suppose on admission: provision for doubtful debts is raised from ₹6,000 to ₹9,000; stock of ₹1,00,000 is revalued at ₹92,000; investments of ₹60,000 have a market value of ₹54,000; building of ₹2,00,000 appreciates by 10%; creditors include ₹4,000 that will not be paid. Old ratio 3 : 2. Prepare the Revaluation Account. [3 marks]

Try it first, then show the solutionSolution

1. Revaluation Account

   Dr: Particulars	₹	Cr: Particulars	₹
   To Provision for Doubtful Debts A/c (9,000 − 6,000)	3,000	By Building A/c	20,000
   To Stock A/c	8,000	By Creditors A/c	4,000
   To Investments A/c	6,000
   To Arun's Capital A/c (3/5)	4,200
   To Bina's Capital A/c (2/5)	2,800
   Total	24,000	Total	24,000

Answer: Profit on revaluation ₹7,000: Arun ₹4,200, Bina ₹2,800.

Accumulated profits, losses and special reserves

Reserves and losses in the old Balance Sheet belong to the old partners and are transferred to their Capital A/cs in the old ratio (unless retained).

• General Reserve, Reserve Fund, Contingency Reserve, P&L A/c (Cr): credit old partners.
• P&L A/c (Dr), Advertisement Suspense / Deferred Revenue Expenditure: debit old partners (written off).
• Workmen Compensation Reserve (WCR): if there is no claim, distribute it all. If there is a claim, transfer that amount to a Workmen Compensation Claim (liability) and distribute the excess. If the claim exceeds the reserve, the shortfall is debited to the Revaluation A/c.
• Investment Fluctuation Reserve (IFR): a fall in the market value of investments is met first from IFR; the balance of IFR is distributed. If the fall exceeds IFR, the excess is a loss debited to the Revaluation A/c.

Reserves to be retained in the new firm (scope item vi): leave the reserve in the books and pass one entry for the new partner's share: New Partner's Current A/c Dr To Sacrificing Partners' Capital A/cs (for retained profits). For retained losses the entry is reversed. If a reserve is to be reduced, distribute the reduction to old partners first, then adjust the retained part.

Worked example

Suppose Gopal and Hema share profits 2 : 1 and admit Indu for 1/4 share. Workmen Compensation Reserve of ₹40,000 is to be reduced to ₹28,000 and the balance retained in the new firm; there is no claim. Pass the entries. [3 marks]

Try it first, then show the solutionSolution

1. Particulars	Dr (₹)	Cr (₹)
   Workmen Compensation Reserve A/c ... Dr	12,000
   To Gopal's Capital A/c		8,000
   To Hema's Capital A/c		4,000
   (Being excess reserve distributed in old ratio)
   Indu's Current A/c ... Dr	7,000
   To Gopal's Capital A/c		4,667
   To Hema's Capital A/c		2,333
   (Being Indu's 1/4 share of retained reserve of ₹28,000 adjusted)

2. Retained ₹28,000 × 1/4 = ₹7,000, credited to the sacrificing partners in 2 : 1 (₹4,666.67 and ₹2,333.33, rounded).

Answer: Reduction of ₹12,000 to old partners in 2 : 1; Indu's Current A/c debited with ₹7,000 for her share of the retained ₹28,000.

Adjustment of capitals

(a) Old partners' capitals on the basis of the new partner's capital

1. Total capital of the new firm = New partner's capital × reciprocal of his share.
2. Each old partner's required capital = Total × his new share.
3. Compare with his capital after all adjustments (revaluation, reserves, goodwill). A surplus is withdrawn (Capital A/c Dr To Bank) or transferred to his Current A/c; a deficit is brought in (Bank Dr To Capital A/c) or debited to his Current A/c.

(b) New partner's capital on the basis of old partners' adjusted capitals

1. Combined adjusted capital of old partners ÷ their combined new share = total capital.
2. New partner's capital = Total × his share.

Use capitals after every adjustment; using balances before revaluation gives wrong figures for every partner.

Worked example

Suppose Arun and Bina (new ratio with Chetan 12 : 8 : 5) have adjusted capitals of ₹3,73,800 and ₹2,49,200. Chetan brings ₹1,60,000 for his 1/5 share. Capitals are to be in the new ratio based on Chetan's capital; deficits are brought in cash. Find the amounts. [2 marks]

Try it first, then show the solutionSolution

1. Total capital = 1,60,000 × 5 = ₹8,00,000. Arun 12/25 = ₹3,84,000; Bina 8/25 = ₹2,56,000.
2. Arun brings 3,84,000 − 3,73,800 = ₹10,200; Bina brings 2,56,000 − 2,49,200 = ₹6,800.

Answer: Arun brings ₹10,200 and Bina ₹6,800.

Reconstitution of Partnership: Admission in real life

Each concept, met in an everyday situation. Read the situation, answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Topics in this chapter

• Reserves and Accumulated Profits on Admission
• Treatment of Goodwill on Admission
• Revaluation Account on Admission

Reconstitution of Partnership: Admission: key facts

Sacrificing ratio

Old share − New share (for each old partner)

New share (sacrifice in old ratio)

Old share × (1 − New partner's share)

Firm's goodwill from new partner's premium

Premium brought ÷ New partner's share

Hidden goodwill

New partner's capital × reciprocal of his share − (old partners' adjusted capitals + new partner's capital)

Total capital from new partner's capital

New partner's capital ÷ his share

Each old partner's required capital = Total × his new share.

New partner's capital from old capitals

Old partners' combined adjusted capital ÷ their combined new share × new partner's share

How the board asks Reconstitution of Partnership: Admission

The question patterns to expect, and the method that works for each.

Tricks to remember Reconstitution of Partnership: Admission

Short memory aids. Say each one aloud once, then use it on a question the same day.

• Order of work: R-G-R-R-C-B

  Ratios, Goodwill, Revaluation, Reserves, Capitals, Balance Sheet.

  Use it when: Every admission problem.

• Premium goes to the sacrificer

  Whoever gives up a share gets paid; whoever gains pays.

  Use it when: Goodwill entries, including a gaining old partner.

• Retained reserve: newcomer's Current A/c

  Reserve stays, newcomer pays (through his Current A/c).

  Use it when: Scope item (vi) and WCR retained.

Reconstitution of Partnership: Admission: board-level solved questions

Ordered from board level to HOTS. Cover the solution, write your own, then compare step by step.

Case-study practice (Section A style)

Read the situation, then answer every part. In the board paper this is a 6-mark question split into 1 + 2 + 2 + 1 marks.

Where the marks are

How a typical answer is split into step marks. Show every step: a right final answer alone rarely earns full marks.

Where students lose marks in Reconstitution of Partnership: Admission

The slips examiners see most often, and what to write instead.

• ✗Mistake: Not adjusting the Workmen Compensation Reserve correctly

  CISCE examiners' comments, 2024: "Did not pass the entry adjusting the Workmen Compensation Reserve balance which was not to be distributed"; CISCE examiners' comments, 2025: "Treated the reduction as a claim."

  ✓Do this: Separate three things: claim (liability), reduction (to old partners), retained balance (new partner's share through his Current A/c).

  Usually costs: 1-2 marks of a 3-mark question.

• ✗Mistake: Using the new partner's Capital A/c for adjustments that belong in his Current A/c

  CISCE examiners' comments, 2025: "Adjusted retained WCR through new partner's capital account instead of current account."; also "Omitted the second entry for Sujay's share."

  ✓Do this: Goodwill not brought in cash and retained reserves are adjusted through the new partner's Current A/c (syllabus scope).

  Usually costs: 1 mark.

• ✗Mistake: Wrong side or wrong names in the Revaluation A/c

  CISCE examiners' comments, 2025: "Wrote 'Commission' instead of 'Creditors'."; "Posted entries on wrong side of account."; "Incorrect treatment of creditor paid privately by a partner."

  ✓Do this: Loss items (asset down, liability up or new) on the debit side; gains on the credit side. Use the exact account names.

  Usually costs: ½ mark per item.

• ✗Mistake: Confusing self-generated with purchased goodwill

  CISCE examiners' comments, 2025: "Some failed to infer the meaning of self-generated goodwill."

  ✓Do this: Self-generated goodwill is never recorded (AS-26); by paying a premium the new partner acquires a share of it, that is, a share in future profits.

  Usually costs: 1 mark.

• ✗Mistake: Short forms in entries

  The 2026 specimen answer key states that short forms such as PFG for Premium for Goodwill or PDD for Provision for Doubtful Debts should not be used.

  ✓Do this: Write every account name in full.

  Usually costs: Part marks across the question.

Practice questions on Reconstitution of Partnership: Admission

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

1. Q1 · 1 mark · MCQBoard level

   Before adjusting a revaluation loss of ₹4,000, the capitals of Deepak and Esha (4 : 3) are ₹48,000 and ₹36,000. Farah is admitted and will bring capital equal to 20% of the combined adjusted capitals of Deepak and Esha. Her capital is:
   (a) ₹16,800
   (b) ₹16,000
   (c) ₹17,600
   (d) ₹20,000

   Hint

   Adjust for the loss first.

   Answer

   (b) ₹16,000 = 20% of (84,000 − 4,000).

2. Q2 · 1 mark · Very short answerBoard level

   Give the journal entry when a new partner pays the premium for goodwill privately to the old partners.

   Hint

   Does money enter the firm?

   Answer

   No entry is passed in the books of the firm.

3. Q3 · 2 marks · Short answerBoard level

   P and Q share profits 5 : 3. R is admitted for 1/8 share, which he takes entirely from P. Find the new ratio.

   Hint

   Only P's share changes.

   Answer

   P 5/8 − 1/8 = 4/8; Q 3/8; R 1/8. New ratio 4 : 3 : 1.

4. Q4 · 3 marks · Short answerHarder board level

   Investments (book value ₹1,20,000) have a market value of ₹1,00,000; Investment Fluctuation Reserve is ₹15,000. Old ratio 1 : 1. Pass the entries on admission.

   Hint

   IFR absorbs first.

   Answer

   IFR A/c Dr 15,000 and Revaluation A/c Dr 5,000 To Investments A/c 20,000. Revaluation loss of 5,000 (with other items) to partners 1 : 1.

5. Q5 · 2 marks · Short answerHarder board level

   Old partners' adjusted capitals are ₹2,70,000 and ₹1,80,000; these are the capitals of X and Y. Z is admitted for 1/4 share and is to bring capital in proportion to his share on the basis of the old partners' adjusted capitals. Find Z's capital.

   Hint

   Combined capital ÷ combined share.

   Answer

   Total = 4,50,000 ÷ 3/4 = ₹6,00,000; Z = 6,00,000 × 1/4 = ₹1,50,000.

6. Q6 · 2 marks · Short answerBoard level

   An unrecorded computer worth ₹15,000 is to be brought into the books and an outstanding electricity bill of ₹3,000 is to be recorded on admission. Show the effect on the Revaluation A/c.

   Hint

   Unrecorded asset is a gain; unrecorded liability a loss.

   Answer

   Credit Revaluation A/c ₹15,000 (Computer A/c Dr); debit Revaluation A/c ₹3,000 (To Outstanding Electricity A/c). Net gain ₹12,000 to old partners.

7. Q7 · 3 marks · Short answerHOTS / competency

   A firm decides to keep its General Reserve of ₹60,000 and P&L A/c (Dr) of ₹20,000 unchanged on admitting a partner for 1/5 share. Old ratio 3 : 2. Pass the single entry.

   Hint

   Net retained profit first.

   Answer

   Net retained = 60,000 − 20,000 = ₹40,000; new partner's share = ₹8,000. New Partner's Current A/c Dr ₹8,000 To Old Partners' Capital A/cs ₹4,800 and ₹3,200.

8. Q8 · 2 marks · Short answerHOTS / competency

   A student credited the whole Workmen Compensation Reserve of ₹30,000 to the old partners although a claim of ₹12,000 had been accepted. What is wrong, and what is the correct treatment?

   Hint

   A claim is a liability.

   Answer

   Only the excess over the claim belongs to the partners. Correct: WCR Dr 30,000 To Workmen Compensation Claim 12,000 and to old partners 18,000 in old ratio.

9. Q9 · 3 marks · Short answerHarder board level

   New partner brings ₹50,000 as premium; old partners withdraw half of it. Old ratio 2 : 1, sacrifice in old ratio. Pass the entries.

   Hint

   Three entries.

   Answer

   Bank Dr 50,000 To Premium for Goodwill 50,000; Premium for Goodwill Dr 50,000 To A's Capital 33,333 and B's Capital 16,667; A's Capital Dr 16,667 and B's Capital Dr 8,333 To Bank 25,000.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1. 1.Sacrificing ratio?Show answer

   Old share − New share.

2. 2.Entry when premium is paid privately?Show answer

   No entry.

3. 3.Premium not brought in cash: which account?Show answer

   New partner's Current A/c Dr To sacrificing partners' Capital A/cs.

4. 4.Claim exceeds WCR: excess goes where?Show answer

   Debited to the Revaluation A/c.

5. 5.Format of the new Balance Sheet?Show answer

   Horizontal.

6. 6.Existing goodwill in the books on admission?Show answer

   Written off among old partners in the old ratio.

Quick revision checklist

The night before the exam: can you do each of these without looking?

• ☐Two rights of the new partner: share of assets and of future profits.
• ☐Premium to sacrificing partners in sacrificing ratio; privately paid: no entry.
• ☐Premium not brought: New Partner's Current A/c Dr.
• ☐Hidden goodwill = implied total capital − actual total capital.
• ☐Revaluation profit/loss and reserves to old partners in old ratio.
• ☐WCR: claim is a liability; excess claim over reserve to Revaluation. IFR: absorbs fall first.

Reconstitution of Partnership: Admission: frequently asked questions